耶鲁开放课程金融市场

For-Profit vs. Non-Profit
For-profit corporation is owned by shareholders, equal claim after debts paid, subject to corporate profits tax. Non-profit is not owned, self-perpetuating directors. Not subject to corporate profits tax.
Voting of Common Shares
Usually one share one vote, in person or by proxy, for board of directors and some other essential matters Shareholders meetings usually annual event, and required by law for big events such as merging corporation Shareholder meeting circuses
Adding Taxes to M&M World
Dividends are taxable as personal income, share repurchases are capital gains, lower rate. Announcing payment of new dividends should lower value of firm by present value of taxes.
Payment of Dividends
Purely discretionary Young firms typically pay none NASDAQ dividend yield virtually zero Corporate culture influences dividends. Microsoft Liquidity constraints on dividends
Common vs. Preferred Stock
Common stock: dividend is at discretion of firm, subject to legal restrictions Preferred stock: Specified dividend does not have to be paid, but firm cannot pay dividend on common stock unless all past preferred stock dividends are paid. Corporate bonds: Firm is contractually obligated to pay coupons and there is a maturity date when principal must be paid.
Why Do Firms Pay Dividends?
Hersch Shefrin and Meir Statman: Selfcontrol theory of dividends. (analogy to Christmas clubs, overwithholding) Rule of thumb spending rule. Prospect theory interpretation: framing matters. Dividends framed as income. University endowments once required highyield investments to provide income
Dividend Signalling
By raising dividends, firm shows it can court bankruptcy. Battacharya, Hakansson, Ross Problem: alternative signalling methods are cheaper tax-wise
Lintner Model of Dividends
DIVt-DIVt-1= ( × EPSt-DIVt-1) =adjustment rate, 0< <1 =target ratio, 0< <1
DIVt = ρτ ∑ (1 ρ ) k EPSt k
k =0 ∞
Kahneman & Tversky Framing Example
Other Corporate Obligations
Convertible bonds: bondholder has option to convert the bond to stock Employee incentive options Tracking stock Junk bonds Warrants Partnership contracts
K&T Framing Continued
Other respondents given a different choice: If program C is adopted, 400 people will die If Program D is adopted, there is a 1/3 probability that no one will die, and a 2/3 probability tha 600 people will die.” (Majority: D) Scientific American 1981
Lecture 10: Corporate Equity, Earnings and Dividends
The Corporation
[1611] A body corporate legally authorized to act as a single individual, an artificial person created by royal charter, prescription, or act of legislature, and having authority to preserve certain rights in perpetual succession. (OED) Compare publicani of ancient Rome, essentially corporations (though the most prominent were private collecting agencies for taxes)
Modigliani-Miller Dividend Irrelevance Theory
Journal of Business, 1961. Assume no taxes or transactions costs Consider purely financial transaction: selling shares to pay dividends M&M Conclusion: Dividend policy has no effect on the value of the firm. Purely nominal difference between dividend checks and repurchase checks.
Limited Liability
Even publicani had some form of limited liability sometimes New York State legislature made limited liability standard for all corporations, 1811 Standard copied by other states, finally California, 1931.
General Public Utilities Corp
President Kuhn proposed to substitute stock dividends for cash dividends, and offered to sell the stock dividend for any stockholder for minimal transaction cost. (ca. 1968) Direct saving to shareholder: $4 million a year. Intense negative shareholder reaction
“US is preparing for a rare Asian disease which is expected to kill 600 people.” “If Program A is adopted, 200 people will be saved. If program B is adopted, there is a 1/3 probability that 600 people will be saved and a 2/3 probability that no people will be saved.” (Majority: A)
S&P D/E & D/P 1871-2004
S&P 500 Dividend/Earnings and Dividend/Price, 1871-2004
1.8
1.6
1.4
1.2
1 Dividend/ Earning Dividend/ Price 0.8
0.6
0.4
0.2
0 1860
18801900ຫໍສະໝຸດ Berle and Means
Adolf A. Berle Jr., and Gardiner C. Means, The Modern Corporation and Private Property, 1933 Separation of ownership and control “ownership is so widely scattered that working control can be maintained with but a minority interest.” The “quasi-public corporation” is constrained by law to serve other interests.